The System Is Broken, the Fed Is Trapped | James Lavish

This is just mental.

Like trying to navigate these markets feels like 2008, 2010, all over again. It just feels like there's something freaking off here. They don't trust the government to not come in with a tsunami of long dated paper at some point because they have to. The debt spiral, we're in it mathematically. There's just nothing we can do here. There's four doors and three of them have been locked and there's just no other option but the fourth door. There's really no choice for these guys.

They're going to have to print money at this point. What we are experiencing right now is an information or a knowledge arbitrage.

And so people just do not yet understand how Bitcoin is different. Bitcoin is going to trade above a million dollars in early 2030s. 2032, 2033, I would be very surprised if we're not touching million dollar Bitcoin. What a freaking beating it's been, huh? Holy shit. So it's so funny. When I asked you around Christmas time, if you want to do a pod, you're like, there's not much happening right now. Maybe we should hold off for a little bit.

How quickly that has changed. I don't know if this is total recency bias, which it probably is, but this is the most turbulent macro world I've remember in such a long time. No, I was just saying this morning on Macro Monday, I was like, this is just mental. Like trying to navigate these markets feels like 2008, 2010 all over again. It just feels like there's something freaking off here. So I'm bringing up this. So I've got maybe, okay, good.

So yeah, I mean, there's just, it just feels like, I don't know. I just can't put my finger on it. Like the reality is, Bitcoin's acting like it's, I don't know, it's disconnected from the market. The market's going up. Bitcoin's down 30% from the high. And now it's just, it's like chomping sideways, just grinding. It's like, and lower on the weekend. I don't know. How are people's spirits about it? Oh, I mean, I think sentiment is shot. Like it's almost as bad as I ever remember it being.

um but the weirdest thing is that like when bitcoin when sorry when gold's been ripping over the last year bitcoin's been like it's done its thing a little bit but it's been relatively flat ish um not really had the volatility to the upside like gold but then as soon as gold started crashing initially it didn't seem like anything was going to happen with bitcoin like it's kind of held firm but then it's had all the volatility to the downside too

and i just i don't know what's going on like what's your read on that i mean

I want to say that Bitcoin's sniffing out that the markets are just about to get really hairy. And we saw a taste of it on Friday, right? So you saw, you know, he had Warsh be, he was announced on Friday. Well, you kind of felt some turbulence before that because you had Powell come out and, you know, for the first time I hadn't watched him talk for the first time in a while because I just figured he'd be saying the same exact thing.

And he came out a little bit more hawkish than even I expected, you know.

But let's be clear, this is now, it's not even political, it's personal for him, you know. He was so humiliated by Trump when Trump brought him into that facility and the new Fed facility that their new Fed building or renovating, right, the billion dollar renovation. He brought him in there. They put hard hats on. And Trump's a big guy. And you've got little Powell in his tie and his big hat on. And he just looked, he knew that he knows what he's doing.

He made him look like a little caricature, like a little boy patting him on the head. Is this when he had the paper, like he had the budget in his hand as well? Yeah, yeah. Pretty humiliating. What do you think Powell's thinking? The most powerful attorney, basically, in all of finance, right? being the head of the Fed, not really an attorney role, but he's humiliated. Now he's like, fuck you, Trump. You're not gonna push me around.

And so his legacy is he wants to be known as the guy who engineered a soft landing. I mean, look, the reality is, you know, people don't remember they won't remember all the things they did before, and they're going to remember these moments, right? Now, you and I will remember that he printed over $5 trillion in 2020 to 2022, and that's what caused all this. That's what caused this inflation. And he's been reeling ever since, scrambling, trying to tamp it down.

He went from this is just transitory to, you know, well, now it's because of, possibly because of tariffs to, oh, we have it under control. And that's what he wants, he's done in just a couple months here. His term's over. And so, he wants to be remembered as the guy who engineered the soft landing. He wasn't pushed around, he was apolitical, he wasn't, you know, he wasn't in, you know, cahoots with the Treasury, with Besant or with Trump, and he was independent and he ran the Fed independently.

We both know that's ridiculous. They cut rates twice before the election, before Trump was elected, before the presidential election here. And then they just stopped. And that was like, it doesn't really pass the sniff test. Independent of the Republican Party, but not of the Democrat Party.

Yeah, it just didn't pass the sniff test. So that's what's going on, right? And then it comes out Wednesday to bring it back full circle. What we're talking about here, it comes out Wednesday, super hawkish, and the markets start getting nervous.

Um, well, now you see, then you, you get Warsh as the, as the nominee that, uh, that Trump has, is, is nominated to replace him. He's got to go, he's got to go through the, uh, process here still in front of Congress, but, um, he's got to be, um, confirmed. but the market immediately responded.

Now, I feel like what happened was you've been seeing, we can't talk about macro without talking about metals now. You can't talk about it without talking about the debasement trade and that thesis that's come on very strong this year.

and gold and silver in particular have taken the mantle on they're going to they're going to be the assets that are going to be the ones that people turn to investors turn to for protection against ultimate debasement jp morgan put our report i talked about i did a report with uh with unchained we'll put a link in here that people can grab it um that talks all about this the gold and silver debasement and possibly and bitcoin eventually will be the one that that people will turn to

obviously not today but that's that's the thesis and so on friday what i think would happen was when warsh was announced as the nominee then uh that kind of set off a cascading effect with metals So gold and silver started falling pretty dramatically. Here's the thing. Before that, you had the exchanges out there ratcheting up margin requirements for metals. And that has been, that's created an issue for people who own these things, that they have to have a larger and larger margin.

well when you had this announcement on Friday you started that tumble it just said cascading something this cascading effect we're just trading margin calls one after another after another you saw silver do this insane move you know when you when you look at it from from Friday and just looking at the the daily to go So from $121 per ounce all the way down to $70 in chains, like $72 or $73. I mean, mental for an asset like this.

These things, that and gold were moving the entire market cap of Bitcoin multiples over. And it was just insane. What if you could lower your tax bill and stack Bitcoin at the same time? Well, by mining Bitcoin with Blockware you can. New tax guidelines from the Big Beautiful Bill allow American miners to write off 100% of the cost of their mining hardware in a single tax year. That's right, 100% write off.

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And so, but I think it was not just Warsh, it was also the margin calls. And I wrote all about this in my newsletter this past week, this incident, this specific thing with Warsh and what it really means for him to be the nominee. Well, yeah, he came out and he's been known as, wanted to be known as a hawk, meaning that for your listeners who aren't in the world of Fed and Fed speak, let's translate it for them. When you're a dove, that means that you're expansionary.

You want low rates, you want QE, you want easy money, and you want to juice the economy that way. When you're a hawk, you're tight money supply. You're tight on rates, meaning you want to keep them high and make sure that you do not allow inflation to notch or ratchet up. And you're against QE if you're a hawk. And he's vocally been like that before. In fact, he basically wanted to vote against QE and all that way back when, and Bernanke insisted that he get on board to have a unanimous vote.

And then he did, and he quit, basically. So this was at the time of the financial crisis when he was a governor, is that right? He was so young and 38 years old, and I'll have to pull up my news. So usually I have my newsletter up. Let's see. Let's see what, you know, I've got the actual data in here. So I don't want to quote the wrong thing on your show here, Danny. So just give me a... But I'm pretty sure he was the youngest Fed governor ever, I think.

He is super young, you know, 38 years old. That's correct. So he's 38 years old, Fed governor, and he's being muscled by these guys. He's just a kid and he's being muscled by these guys. And he decides, OK, I'll vote that way, but I don't like it and you're going to lose me. And so he leaves. But remember, he was also he worked at Morgan Stanley right before he was a Fed governor.

So they used him to kind of help engineer this whole process and and and and work with the with Morgan Stanley and convert it to a bank holding company. This is all in the newsletter, so I won't bore your listeners with this. But the bottom line is he's an insider. He knows how this stuff works. He's been there before. And, yeah, he's the youngest Fed governor in history when he was 35. And Bush is the one who put him on the Fed.

But anyways, then he goes and he marries Jane Lauder, you know, S.A. Lauder and the granddaughter of S.A. Lauder. And, um, I mean, her father's worth almost $5 billion. Uh, so, I mean, this is just, I mean, how far away from the Cantillon effect are you really? I mean, not very far. Like this is- Right next to the spigot. You're right next to the spigot. And so, I mean, you know, yes, he's, he's been in a very vocal hawk.

He's also benefited greatly personally from this whole system, clearly whether it through marriage into such a wealthy family or through Morgan Stanley and all the rest of it He has I don know the guy I don have anything against him Just on observation though the reality is he stepping into this situation with a, and it kind of gives, in my opinion, it kind of gives Trump coverage. Like, look, I nominated a hawk. If he lowers rates, it's because it's the right thing to do.

But we all know what's happening here. We have over $10 trillion of debt that's coming due here this year. Why? Because we never turned out the debt. We've talked about this ad nauseum.

But the problem is Scott Bessent wanted, he was so also very vocal and critical of Janet Yellen when during the campaign, when Trump was campaigning, he was very vocal about how she just made a major mistake. She should have termed out the debt. And he said, I'm going to term out the debt. That's what we're going to do. We're going to move it back out on the calendar to manage it better. So we're not playing this game of chicken of $2 trillion plus deficits.

We're just tacking on trillion after trillion after trillion dollars on top of the T-bill, on all the T-bills that are out there, and demanding more and more and more banks and individuals to buy these T-bills. Where are you going to find all that demand? Okay, we're going to get to that. But the issue here is that he was super vocal and critical about all that. Why was he? Well, to be fair, Janet Yellen should have, she screwed up royally too. We have so many problems here.

And if you go back in sequence, you have, Janet was the Fed, she was the head of the Fed at one point. She was chair of the Fed. So she knows how this works. Then she goes to the treasury. Then you've got, now you've got Powell, the head of the Fed. You've got the lockdowns. You've got supply chain issues. You've got all that going on. And then he prints and goes and prints $5 trillion plus. Okay, that was stupid. We got that going on. That's number one.

Now you've got, oh God, we need people to be buying these treasuries because we've printed so much money. We bought all these. How are we going to get them off our sheets? at the same time you have Russia that goes and invades Ukraine and in a you and I've talked about this before I may have said this on your show before but in a monumentally stupid decision they decide to seize their assets Russia's assets United States decides to seize their assets

seize their treasuries, kick them off the SWIFT network. I mean, how stupid was that? So now you're in a situation, flash forward, now you've got inflation raging, the Fed's having to raise rates. Yellen knew this was going to happen. She had to. I mean, she had to know. And she didn't, she missed her opportunity. She didn't turn out the debt. They were issuing T-bills. She never changed the quarterly funding, you know, to deal with this better before the rates had to be

ratcheted up. And so here we are. Now you've got $10 trillion of debt that's got to be turned over annually. Plus you're adding one to $2 trillion of that every single year, probably more. And now you need more buyers of treasuries. Where are they going to come from? Where are they going to

come from? Well, now you've got this whole fight in Congress about, you know, basically the stable coin legislation that they're trying to make it, they're trying to create a situation where you have stable coins that are, you know, pegged to the U.S. dollar, clearly, issued through banks, and the banks are the ones who are going to be buying these treasuries because they're using them for stable coins. Now the banks are in the fight over whether or not they have to pay interest

to their customers who own these stable coins. I mean, it's just insidious, right? So they buy these stable coins, they get that yield on the stable coins and they don't pass it on to the customers. It's basically what they're doing now. They get this cash sitting on the Fed balance sheet. They're getting paid interest on this, and they're not passing along to their customers. The customers get 0.002% interest rate or 0.2% interest rate instead of the 4 point

whatever it should be. At this point, back then it was 4 point. At this point, it should be at least 3.6, 3.7%. They're giving them nothing. They want the same deal. They want to keep that, you know, that profit engine going. And so, but anyways, to bring, to land the plane on this, now we've got an issue where Besson is at the treasury. The rates are still high because the Fed refuses to lower them. You know, Fed funds is still at, on average, 3.65%, you know, because

it's 3.5 to 3.75%. And so it's 3.6% or so. And the 10 years out at 4.3%. Everything is keyed off the 10 year, Danny, you know this mortgage rates, auto late auto loan rates, personal lines of credit, your credit card rates, everything is keyed off the 10 year. And if it's a 10, it's at 4.3%. Well, where do you think mortgages are? They're over 6%. It's keyed off of that. And that's what Trump wants to lower.

But here's the thing that people keep hearing them say over and over and over again, I cannot emphasize this enough, is that Besant will be out there saying, we've got to lower rates. Trump will be out there saying, we've got to lower rates. The Treasury will go lower rates. And what will happen? Well, when they lowered rates right before the election, they lowered them by 50 basis points. And the 10-year rose by 50 basis points. Why?

Why? Because people don't believe that either inflation is tackled or that they're going to be able to issue enough, have enough buyers of treasuries, 10-year treasuries, that they're going to be able to issue them at that rate. So what they're saying is they don't trust the government to not come in with a tsunami of long dated paper at some point because they have to, because the deficits are so high. You know, the Lin Alden, nothing stops this train.

And my take on this has been the debt spiral. We're in it mathematically. There's just nothing we can do here. There's four doors. And this is how I like to frame it now, is there's four doors and three of them have been locked and there's just no other option but the fourth door. You know, the austerity door locked. You're not going to get austerity. Neither party is going to cut expenses enough at the government level that it's going to make a difference.

We tried with those. We're still at $2 trillion deficits. Taxing, raising taxes. First of all, it's not popular. Second of all, it's only popular with the people who want taxes on billionaires. You see what's happening in California and New York. The billionaires are leaving. They're literally going to Miami and Austin. They're leaving. They're coming here, Danny. The housing prices here are going up because we have a deluge of wealthy people coming in from California into

Las Vegas for people who don't know where I'm sitting. It's crazy. The houses, just the nice houses go fast here. But anyways, so taxes don't really work, number one, because they're not that popular. And number two, there's a productivity, you know, it crests at a certain point of taxes where the amount that you'll bring in in taxes on GDP levels out and peaks because it starts

hurting productivity. Why is that? Because companies who are taxed higher, small companies who are tax hire individuals, they aren't reinvesting in productive lines of products, in new products. They're out hiring people. They're paying taxes. And it goes to the government and it gets wasted. We've seen how much waste is in there. I mean, Minnesota is, if the people who are not on Twitter and X and don't know what's going on in Minnesota, God help you, the fraud in

that state is, it's crazy. The fraud in California is insane. They just waste money. It goes right into their pockets. It's the Cantillon effect at the political level. It's awful. And I'm not, I mean, it's both parties, by the way. It's not just one party. So that's the second door. The third door, well, we could default. You could just default on your debt and reset it. That's not happening. You would never do that with, you know, debt that's denominated in your own currency.

You'll just print more money, which is door four. And we keep doing it. We're doing it every day. Right now, we're doing it in soft QE, where they're out there, they're buying T-bills in order to, supposedly, in order to make sure that the bank reserves are high enough that it can meet the velocity of capital needed for this amount of GDP, which is about 10%. We're getting to that level. It's starting to make the Fed a little bit nervous. So they're out there buying T-bills now.

Regular market processes, right? No, it's QE light. And eventually what the market is telling you is they're gonna have to buy longer dated treasuries. They're gonna have to do Operation Twist where they're out there buying longer dated treasuries and that's full-on QE. Not yet, but they will. Maybe it takes an event.

maybe it just takes a uh a certain amount of um of uh interest of yield on the tenure they have no choice i've got to get in there and start controlling it through yield curve control effectively by buying bonds and getting those rates lower so anyway that's a long way of saying that yeah wash is um he's a known as a hawk that's great it's um but he has no choice there's i mean there's so much in there i want to definitely get into the four doors but on wash

like so he is he was like very young fed governor he must be an impressive person i don't know very much about him but he clearly had a very successful career yeah he's against qe which i think we both agree makes a like even though it's great for our bitcoin bags it's not great for society like we like i agree with him there it's terrible yeah but there's no way trump is going to nominate someone who is not going to lower rates and potentially do something like qe and try and stimulate the

economy, get things going. So like what changed between him leaving as Fed governor to now that's like allowed him to get this nomination? Well, I mean, you know, he, remember that he's a kind of a product of, of, um, of, uh, um, Stanley Druckenmiller. Right. Okay. And, And so is Scott Besson. So they all know each other. I mean, Danny's a big club. We're not in it. I mean, I didn't make $120,000 a year and become worth $240 million in Congress. That's just, it's crazy.

So, okay, that's a big accusation. um that my feeling on it is not really what his stance is going to be as much as what are the choices like what are the choices and it's just math and they're going to fall back on that they're going to say we're doing what we need to do to shore up the markets to make sure that that we don't have a dysfunction in the credit markets at some point i don't know when that happens I'm not calling for a credit event or a failed auction.

I'm just saying that look at Japan. Look at how long they had to be out there controlling yields. And now look at it. It's blowing out because they've lost control. So, yeah, what changed is he's an insider. He knows these guys. They feel comfortable with him. whatever he said to Trump, whatever he said to Scott Besson, it made them feel comfortable that he's on board with doing what they need to do. And they know that they're going to need to manage

this at some level. Now, I don't know how much it's going to be. Now, here's where it gets crazy.

There's been a lot of people calling for productivity miracle and that you're going to how now have this spike in productivity because of AI. Well, remember, you're too young to remember this, but when I started on WallShoot, we didn't have these things, man. I had a BlackBerry. It was like a little dial BlackBerry. It was like a beeper with text messages. And so we all thought that's going to make us all so productive. It's going to be, you know, wow, the productivity is

going to be through the roof. Well, yeah, it did help productivity, but also just dumped more work on you. You're just, it just became that you, each individual was expected to be able to do more. Why? Because they can answer emails 24 seven. They could answer messages or phone calls or whatever they need to do, sign documents for God's sakes at dinner on your phone. And that's, that's gotten

to be where it is. Okay. Well, why does this matter? It matters because if you have this productivity boom, well, on the other side of it with AI, there is a casualty on this one.

And the casualty is that young or entry-level data entry kind of clerk, uh simple and a simple math analysis simple analyst um you know the the the number of jobs that are going to be taken over coding i mean coding's dead you like to be a coder like you the vibe coding thing is just that's mind-blowing um you don't need to have somebody who understands code anymore. This stuff does it better and without mistakes. And so the thing is,

it's going to cost people jobs. And as Jeff Booth says, and this is this whole thesis, this is what got me to understand and be and really dive deep into the Bitcoin rabbit hole and get comfort around it is that this technological revolution is deflationary. At the same time now, it's going to be really hard on some jobs. You know, you and I are on Twitter and we see this stuff. And we see what's happening in the AI world. Danny, the normal person is not seeing this stuff.

I talk to people who are not in the know, who are just not on this stuff, who are just going to work every day. They're nurses or doctors or lawyers, and they're not looking at this stuff. They have no idea what's going on.

cloud bot no clue you know like that's that's so far down the road they don't even know what the different what gemini versus open ai versus grok versus uh you know um anthropic and cloud they don't know the differences the different engines the different capabilities they have no clue they just hear ai and say oh yeah chat gpt you plug it in and get you know it's kind of like google Yeah. They have no clue what's coming.

So, anyway, so the point is, this is the whole thesis for Jeff Booth, is that the acceleration of advancement in technology brings the acceleration of this deflationary effect And so what it going to do to GDP If you haven tried out Club Orange yet then now is the time It's my go-to place to find Bitcoiners whenever I'm traveling. Club Orange is a social app built for Bitcoiners where you can find local meetups and events in your area and find merchants that are accepting Bitcoin.

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But could you not have a scenario where GDP actually increases quite significantly because of productivity gains with AI and stuff, even while employment is also dropping off a cliff? I could see a world where we have massive productivity gains, but also a huge rise in unemployment. Exactly. And so you have a huge rise in unemployment, which will hurt GDP.

It just, everything you're seeing is you're getting to do more and more and more for less for fewer dollars that's that's deflationary well the productivity gain will be be because everybody's using these things and plugging them in and getting productivity out of it but um how much is that going what are the gains in dollar terms so we're going to need the the offsetting effect which is expansion of the money supply and so that's the scary part yeah i

I mean, something I've said a load of times on the show at this point is I can't see a world where we don't have some form of universal basic income at this point. Like if AI does what people are predicting that it will and replace a large number of jobs, like you were saying with software developers, like one good developer now can probably replace 10 with like using AI tools alongside themselves. So there's your productivity game.

So the company makes more money because that one person could do 10 jobs.

exactly and so that's where i'm like yeah i think you could get increased productivity with increased unemployment but then does ubi have to follow that because what are people going to do if they can't find jobs like the government isn't just gonna let them sit and rot yeah that's a philosophical question that's beyond my pay pay grade you know um i don't i do expect something like that if you talk if you talk to elon that's what he believes he believes you're gonna have and

it's going to be like a wealthy universal income. It's not just basic. Yeah, that's one that I can't understand, though. I don't understand how that can actually make sense, like how the math from that can make sense. Well, that's, that's it. We have, I think we have a long way to go and a lot of disruption, a lot of pain to get there, to be truthful. And that's, that's a, that's not a cynical view. It's just a, it's a cautious view. Yeah, so anyway, you cut it though.

Anyway, you cut it though, Danny, that's the whole point of all this is that there's really no choice for these guys. They're going to have to print money at this point. So with, um, Worf coming in potentially. So actually maybe we should explain that. So he's been nominated by Trump, but what actually happens next before he is the fed chair? Yeah. So now he's got to go through a Senate confirmation, um, you know, process.

And I don't know what that, what that schedule is, but that's what, that's what the, you know, the normal route is. I don't, God only knows, God only knows that the Senate could come up with some, who knows. I think he chose him because he doesn't appear like he's just going to be this figurehead that is going to do Trump's bidding and just lower rates. It doesn't appear like that. And the market's telling you that they believe that, you know, he's not going to. So as far as

the gold and silver markets. That's what they were saying. Yeah, the long end of the curve is still hanging in there. So that's the question. It's like, it's kind of a battle between realities here. And my take is, like I said, is like, there's just, there's, he's not going to have a choice. There's eventually, we're going to have to lower rates. We're going to have to do QE. It's just math. I mean, it's not something that's trying to pump

Bitcoin bags. It's just math. It's just the reality of the situation. So I was reading your newsletter and that was one of the interesting things because basically all you saw on Twitter that day is that gold and silver reacted, seemed like people thought he was going to be a hawk, which I find hard to understand because like if Trump's nominating him, I imagine they've had plenty of conversations and he's going to, I think he probably will do

Trump's bidding. But you put this chart up on the newsletter. Can you explain what this actually is? Yeah. So this is the different yields, right? And so you can see in here, it's the two-year, the 10-year, and the 30-year yields. And so, you know, they gyrated pretty heavily here, right? And that's the surprising part is that investors are trying to get a handle on actually what is going to happen here. Like, where are we going here with these rates?

And they settled in just a little bit lower than they started out. But it's not that much. It's just the gyration was what was interesting. look at this. These are US treasuries and look at where they're going. It's crazy for them to just run around up and down like that in one day. It's just not typical. And you're seeing that with all these things. So this is the market trying to figure out what he's going to do. And where has

it kind of settled? Has the bond market decided it's going to be pretty neutral, his appointment? Well, that's the other chart, is if you bring up Fed funds, the Fed funds charts, you can see that the Fed funds futures, which are those two Bloomberg charts in there, the Fed funds futures, they didn't move around pretty much at all.

And that was surprising. So if you think this guy is going to be a hawk or this guy is going to be a dove because of being nominated by Trump, then you would have expected the Fed funds futures to move, meaning the Fed funds futures will trade according to where investors believe Fed funds will settle out. So that's these two. Exactly. So before he was announced, this is like the day of the Fed meeting on Wednesday. So it's still showing the 128 meeting number there.

But before that, you can see here on the left, the implied overnight rate. Looks like it bottoms out there at about somewhere about 3.1%. that's where it bottoms out there in in the end of 26 beginning of 27 so 3.1 percent so that says that the implied number of rates or of hikes or cuts on the right hand side you can see that it's somewhere around you know somewhere around 2.2 cuts now you go to the next chart after he was announced. And what do you have?

The number of cuts went, it just, it went down a little bit. Yeah, so on the previous one, it's more like 1.75. And then after he was announced, it goes down to about 2.2. Yeah, exactly. So it's just, it's barely, and then it's right at 3.1% is where you're coming in on the total, the ultimate rate. So it's like it was a non-event to the Fed Fund's future. So the Fed Fund's traders are like, well, he's just going to keep doing what Powell's doing is what they're considering right now.

And so what you're watching is real time, all these markets just trying to figure out what the heck is going to happen. And what's interesting about it is that the gold and silver, as far as the, if they were really being bought up for, because of worries about U.S. debasement, this is not just U.S. investors reminding you. Like, this is the, most of this is coming from central banks.

I mean, they're buying a thousand tons from the last three years, which is just, that's double what the normal high rate is. And so they're concerned about holding U.S. dollars, meaning they're concerned by holding U.S. treasuries, meaning that they're concerned about holding U.S. dollars because of that debasement. So for gold to sell off so steeply, that was a little bit of a wake-up call. And does that mean that, oh, hey, we actually are going to get this under control? I don't think so.

So with the gold, like the gold trade has been insane over the last 18 months or so. Do you think this is that trade sort of ending or do you think it's just taking a break? Well, I don't think it's ending. I just think it's just taking a break for sure. You know, you can't have something go. Look, the old saying is trees don't go. They don't grow straight to the sky.

And so it was due some sort of pullback. I did not expect it to be so violent so fast. It was due a pullback, though. Do I think it's over? No, not by any stretch.

What I would hope and expect, though, is that as gold and silver kind of settle in and the volatility decreases and they get into a trading range, that's where anybody who's been playing them for momentum, obviously there were some players that were playing momentum in them, once that happens then they get bored and hopefully that's when they rotate back into bitcoin well that was going to be my next question like when does bitcoin get his run

yeah so well i'm wary of bitcoin here and the reason is because we haven't had a sell-off in the general market it's like bitcoin what i if you looked at bitcoin the last number of times we had a big sell-off in the general market, then Bitcoin kind of front ran it. And then everything kind of followed. And so I expected, oh, Bitcoin's sniffing out the MAG-7 being overvalued here and the general market's going to sell off. It never did. So Bitcoin sold off.

But then gold and silver ripped higher. So there was like this negative cascading effect there where Bitcoin kept selling off and kept grinding lower because Bitcoin and gold kept grinding higher. So it was like people were rotating out. Anybody who was looking for momentum was rotating out of Bitcoin into gold and silver. Not anybody, but some people who were.

And so here's my concern is that we get some sort of steep market drawdown because of an event, Danny, that causes that typical, everything correlates to one trade where you walk into the hedge fund office You walk into an investment fund, you say, just sell 10 or 20% of everything. I don't care. Get it off the books. I need liquidity. Why would you do that? Because you need to be ready for margin calls.

Even if you're a hedge fund, you're on portfolio margining, meaning that you're getting haircuts that are as low as maybe 2%, 3%, 4%. And with certainly 5% or 6% with your blue chip stocks, meaning that you only have to put up five or 6% and you could borrow 96% against it. Well, they move those requirements kind of dynamically during periods of stress. So if you expect there's going to be a period of

stress, you're selling stuff over the weekend. Well, what can you sell? Bitcoin. So Bitcoin goes down over the weekend. Everything correlates to one, meaning gold and silver go down along with stocks, that worries me because if that happens, Bitcoin's still not safe here at 78. It will go into 60s and test that, possibly test that lower band of the power law in whatever it is, high 50s

now. So that's actually a good question, exactly where it is. And if you look at it as of today, if you're looking at the power law for 211, it's 52, six, 52, seven ish, somewhere around 50, 50 to 55,000. I would expect that it would test that if we get a steep drawdown in everything, because markets correlate to one. This is something in that investment funds and hedge funds will be able to sell. And you sell what you, you can, not what you want to.

so does that mean that there's pain coming well I don't know I mean but I do believe Danny that that Bitcoin over the long term is going higher if things settle out here and this market resumes its march upwards I would expect that Bitcoin will join in that's my expectation that we will go back and test our all-time highs again this next year. But that's a lot of ifs. I mean, 58K gang might be right. I mean, that means a reality. Like if that happens,

it'll be absolutely hilarious. But one of the things that like Trump is pretty cooked, I think in the midterms with everything that's happening, like he is, it seems at least from afar, he can't really win the midterms unless something extraordinary happens in the next like eight months or whatever it is. And one of those things has to be the economy, the economy absolutely flying. So he's going to do everything in his power to make that happen. I imagine

like Bitcoin must do well in that scenario. So is that one of the things that's kind of you're holding out hope for? Well, I mean, um, I'm wary of that, that them juicing the economy, lowering rates, heating it up because then you're going to have inflation again. Inflation doesn't come on right away, though, as we all saw. You print money, you buy bonds, and it filters in through the Cantillon effect, and it kind of filters in that way.

And so it takes time It certainly won happen before the midterms Even if they started printing today it It would be difficult for that to happen So um so I don think he worried about that He more worried about oh, let's keep the economy juicing and we'll manage it. We just won't let it get out of control like, like Powell did. That's what he's thinking, I bet. Um, and so he's gonna play that game. He's gonna try to, he's gonna try to, you know, walk that tightrope.

It's a, it's a tough one to walk, as we've experienced. but you don't have to come in with a bazooka. You don't have to print $5 trillion, I don't think, unless there's some sort of credit issue or a credit event or black swan, then you're gonna have to print more than five. You might have to print 10. So, and that's the scary part. And on the backside of that, of course, Bitcoin will not benefit, but it will reflect the devaluation of the dollar on the other side of it. That's what it will do.

Yeah. I mean, with the political incentives as they are, I think they would deal with inflation after the midterms if they thought juice in the economy would actually win them in the midterms. But we will see. It's going to be an interesting year. You obviously follow the liquidity cycles pretty heavily. Michael Howell, he's your guy on that. Where are we at in terms of liquidity cycles? Yeah. Well, and that's the thing is that

Michael believes that we're going to top out here this year. And that global, because when you look at it, it's not just M2. You got to look at the global situation. And if you have the ECB tightening, if you got the UK tightening, if Australia starts tightening, they have big markets. And so, but it's not just central banks. It's the full-on liquidity and meaning the borrowing and the volatility.

If volatility rises in bonds, well, that means that there's a higher requirement for collateral, which is an input. You know, obviously, central bank buying, central bank QE, central bank QT, those are all things, the interest rates themselves, and then the shadow banking. And so all you need is some disruption in the markets in that general cycle, and you'll get a contraction of the money supply.

But he's been saying for a long time that he's thinking that we're going to be topping out here in this next quarter. And so we'll see if he's right. But he's more of, and I like him, Danny, I like his analysis because I don't know exactly how he calculates it. It's proprietary, but he does liquidity.

and it's and that includes all the the debt and financing uh and shadow uh banking where the financial firms are lending to each other and that's repo market stuff and all that so that all matters uh it's not just printing money so m2 is useful it's the it's the biggest component of all that but it's not the only one yeah i need to get him on the show you have to do an introduction for me because I'd like to get into that. Yeah, absolutely. I like Michael. I'll intro him to

you. It sounds like you're pretty cautious though, going into 2026 on Bitcoin. This is, well, look, you know, we're, you know, that I co-managed the Bitcoin Opportunity Fund with David, David Foley. And we're, we have to be exposed because that's what our investor, we're on a Bitcoin standard. We own Bitcoin instead of dollars. That's our, that's part of our thesis. That's our operating measure. And so we're looking for the best opportunities we can

find out there. We're finding some opportunities. We're picking away at them. When we see some of these things draw down so steeply, we're picking opportunities. We're not buying every single treasury, Bitcoin treasury company. There's a handful that we feel comfortable with that we feel can execute on the plan of basically creating Bitcoin through fiat arbitrage. And MicroStrategy is one of them.

I can't talk too much about it because I'm on the board of directors of Strive now, but Strive is one of them. You know, MetaPlanet, obviously, 21, Jack Mahler's company, Those are ones that we feel have, and not to call out any of the other ones, but those are, and then we own some out in some emerging markets like Oranger down in Brazil. So there are some that we feel are well positioned and we are exposed to.

The good news is that as tumultuous as it's been, especially for the Bitcoin treasury companies, is that because we're a hedge fund and we operate in the capital markets, we are able to buy these in the private market and get them at close to or under 1M NAV to the underlying Bitcoin of the company. So, you know, we have exposure to the Bitcoin, but we haven't been hurt by the contraction of that multiple of MNAV on the underlying Bitcoin. So that's the good news.

But to answer your question, we are cautious. And we have some interesting hedges on to protect against that downside volatility, which we expect there to be volatility here. It's insurance. It costs money.

Uh, it's difficult to do without either just throwing away money, burning the money or getting yourself in a situation where you're not really protected. Those are, it's a challenge. Um, but we've done this for many years and we, you know, we've both been doing this for about 30 years. And so we've seen a lot of markets and we've seen a lot of situations and we've got some interesting hedges on that we feel will help mitigate some of that volatility.

so that's a long way of saying that we would not be surprised at all if bitcoin goes and tests these levels again but the good news is that when you do things like that danny and this is what you know listeners um ought to have in their in their head is that when you protect against volatility like that what happens is you can why you wind up making money on that hedge on the way down, then you harvest that and you turn around and you plow it back into what you believe in in long term.

And so you can then, what happens is you're buying convexity because you're then, you're buying these things on the dip and you're purchasing securities that will give you convexity on the upside. meaning that it's a form of leverage that doesn't expose you too far on the downside. And so you're already buying them at a very attractive price and you've made money on the downside and then you're going to make money on the way back up.

That's the way we're, that's our goal in our operating and our mechanism here. And so we're cautious. We're not just plowing everything in every single dip, we're being aware and trying to be nimble without being cute. And it's a pretty fine line to walk. Yeah. So are you doing this with like options on iBit and stuff? I had David Dredge on the show recently. I don't know if you know him, but he talks a lot about this.

Is that the kind of stuff you're doing? Is it option contracts on iBit and things like that? Yeah, we've done options, contracts and all kinds of stuff. And it's sometimes we do it on securities that we feel would be proper hedges for a general market downturn and give us a little bit more beta exposure, which would be more like Bitcoin, because the problem with IBIT is that the options are expensive, or that's a challenge. It's not a problem. It's just a challenge that the

options are expensive. So you have a choice. You can either just buy insurance on the downside, you just buy puts, or you can do some sort of put spread where you're buying this insurance, but you're also selling the insurance past the level that you're comfortable with taking the risk of. Because I don't think that Bitcoin's going to 20,000. So to be hedged under 50, under 40,000, it doesn't really make sense to me. And so you can harvest some of that on the other side.

And what happens is you wind up giving yourself a better risk reward of that insurance. that doesn't come without challenges though. It's not just like, oh yeah, that's a great idea. We'll do that. Because what winds up happening, Danny, is that as you're still far out on some of these options, you have what's called theta, which is that time value that's embedded in that option. And so even if you get, let's say you're protected down 10% down to down 20%.

Well, if the market goes down, you know, IBIC goes down 18%, that's great. You've captured 100% or you've captured 18, you've captured 90 odd percent of what you expected to capture without the cost of the options. and you then you just cover them, right? Well, you can't because there's still time value embedded in that short option. And so it's really difficult to stick the landing there. And so you wind up trading around them a little bit to make sure you get the best out of it.

You harvest the most that you can out of it. And that's where you have to be nimble and not cute is what I'm talking about. Yeah, this stuff's way too complicated for me. Like I only vaguely understand options. like there's no way I'm touching any of this stuff. In fact, yesterday I significantly increased my DCA

and I'm tempted to take out another Bitcoin backed loan. Taking out a Bitcoin backed loan when it's 126,000 is obviously higher risk, but like down here I'm starting to see, well, I'm very tempted. We'll see. I might do another one. But- Yeah, it's tempting. I always caution people to be Be aware that when your collateral is, you're buying something on margin and that collateral is that volatile asset that you're buying. It's just, it is dangerous.

And so you have to do it with money that you're very comfortable with. And it's about position sizing, right? Like if you do it with a small enough part of your stack, then you can always cover the potential margin call. Like there's ways to do it in a sensible way. There's ways to do it without, but yeah, sensibly. without taking undue risk and without being risk wiped out, being wiped out. Yeah. So, yeah. Well,

I'm, uh, I, I'm like eternally perma bullish. Like I, I, I really struggled to see a scenario

where Bitcoin's not, you know, significantly higher in a year's time, but I'm often wrong. So don't take, don't take that with a grain of salt. But, uh, James, this has been awesome. I wouldn't, I'm, I'm with you. I, I believe that what we are experiencing right now, Danny, is an information or a knowledge arbitrage. And so people just do not yet understand how Bitcoin is different and why it is the ultimate store of value and the ultimate debasement asset.

They just don't understand it yet. There's a lot of confusion. The mainstream media puts out confusing and hit pieces about it all the time. They commingle it with all the other cryptocurrencies and they just call them all the same thing. And so I have friends who say, oh yeah, I own Bitcoin, I own the Solana one. And it's like, they just don't get it. And it's okay, it's not their fault.

They're just not interested in doing the research themselves and they're listening to mainstream media and getting their news off of Facebook or their research off of Facebook, they're just not getting it. And so there is an information arbitrage that you and I are experiencing right now. It feels bad and it makes you feel like, am I an idiot? Am I just stupid that I'm, how early am I here?

And the answer is you're still pretty early because I think that Bitcoin is gonna trade above a million dollars in early 2030s. 2032, 2033, I would be very surprised if we're not touching million dollar Bitcoin. That's me, that's my thesis. That's where I believe this thing is going. But I also believe that part of that is that knowledge arbitrage will close.

And as that does, you're going to have the Harvards and the Yales and the University of Texas and the CalPERS and the Texas teachers and every pension and fire fund out there taking positions in Bitcoin as a core asset. And when they do that, that's when that knowledge begins to really spread. And people are like, oh, so Bitcoin is different. Okay, so Bitcoin is different. It's not just this moonshot thing. It's digital gold. Okay, then I should probably own some.

And funny enough is I think that that's going to be a much healthier rise for Bitcoin in price and a much more stable rise. It's not going to be this massive volatile thing. It's going to be like people, oh, I get it. Okay, I get it. Oh, okay. I understand now. I understand. I understand how it's different. And then we'll feel vindicated and, uh, you know, we'll look like we're 143 years old when we're, when we're just in our fifties or in your case thirties.

I mean, I'm looking forward to feeling vindicated again, but I'm with you. I think like I could see million dollar Bitcoin by the mid twenties thirties and it's really not that far away. So you want to buy it now and sell it to them later. Exactly. Just hold on tight.

James this has been awesome man I'll see you in Vegas in a couple of months maybe we should run it back absolutely but thank you for coming on the show tell everyone where to go to find a newsletter I think it's one of my favorite newsletters in Bitcoin so people should check it out thank you Danny it's called The Informationist you can find it jameslavish.com it's on Substack there's a free version that you get one full piece every month and then there's a paid version you get all four

it comes out every Sunday morning so I really enjoy writing it and it's a great community. We get a lot of comments in there and some banter, and it's good. So it's something that I didn't expect to become what it has, you know? When I was talking about this with my wife last night, she was like, well, how did you even come up with the idea of it? And I was just thinking, well, do you remember that book?

I think it's called How Things Work, and it's this big, like, coffee table-looking book that's got photos of like elevators or buildings or very tall buildings and structures or airplanes. And you see a cross section of it, really cool drawings. You see how everything works in there, but it's really simple. And so it's, and I was thinking my vision for this thing was it would be kind of like that in a newsletter.

And now, you know, with the ability to make infographics much more easily with, because I understand Photoshop and all that stuff. And with AI, it's a big help. It's becoming more and more like that. So I'm having more fun with it than ever. So there's that.

And then of course, if you're an accredited investor and you're interested in owning exposure to Bitcoin and Bitcoin companies in a little different way, we have the Bitcoin Opportunity Fund 2 just launched and perfect timing actually for people who want to get exposure to this thing. And so if you're interested, just go to bitcoinopportunity.fund and reach out and we can jump on a call and see if it's something that would be appropriate for you and kind of talk through it. So, and that's it.

Awesome. I will make sure there's a link to the newsletter in the show, but thank you, James. I will see you soon, man. You're welcome, Danny. Always good to see you and talk to you. See you in Vegas soon. от